Hollywood has complained for years that states like New Mexico and Louisiana are eating its lunch by luring away film production.

Now the Milken Institute has attempted to put some hard numbers to this phenomenon with a new report on the economic impact on California of lost production.

The authors recommend California make permanent the incentives it implemented last year and expand them to encompass more productions, as well as digital media and video games. It also recommends tax credits for building or upgrading studio or post-production space, and tracking film production data more effectively.

The high costs of living and doing business in California have prompted producers to look for more cost-effective alternatives, according to the report. And when productions move, they take millions in local spending with them.

Employment in the Calif. industry peaked in 1997, with the state accounting for 40 percent of North American employment in that sector. That declined to 37.4 percent in 2008. Milken researchers conclude that if the state had maintained its 1997 levels, it would have preserved 10,600 direct jobs and $2.4 billion in wages (see media).

Many productions shifted to Canada in the late 1990s because of favorable exchange rates and Canadian incentives. It began returning after 2000, notes the report, but not necessarily to California. Federal data indicates employment in the industry from 2003 to 2008 rose 2.3 percent in California, but jumped by 45.8 percent in New Mexico.

In an effort to counter the incentives offered by other states, California implemented tax credits last year for productions with budgets under $75 million. State officials allocated $100 million annually to the program through fiscal year 2013/2014, according to the California Film Commission website. The tax credit ranges from 20 to 25 percent and terminate in 2014.

Since the incentives were passed, 75 projects have been approved to receive credits, with an estimated spend of $1 billion, generating $500 million in wages for below-the-line staff, such as crew, according to the report.

New Mexico is named as one of five states that have built a critical mass of production and post-production activity that can sustain ongoing work. The others are Georgia, Louisiana, New York and North Carolina. But competition is also coming from Canada, Europe and Australia. New Mexico’s 50 percent reimbursement of wages for on-the-job crew training of state residents, and the increased presence and capital expenditures of production companies here, have fostered the growth of local talent in New Mexico and the creation of infrastructure, states the report.

Gov. Bill Richardson used the report to reinforce his argument that New Mexico must continue its film incentive program, which has faced legislative battles in the past few years, particularly as the state has faced budget deficits.

“It clearly shows that we are a global film force to be reckoned with, and what we stand to lose if we don’t continue our efforts to build and support the industry here,” he said in a statement.

Cerelink solidifies DreamWorks relationship

One of the points the Milken report makes is that production is increasingly portable, as is post-production. Work that was once performed exclusively in California can now be farmed out and returned to studios digitally overnight.

That’s where New Mexico firm Cerelink is finding its sweet spot. The company just signed a multi-year agreement with DreamWorks Animation SKG Inc. after two successful pilot projects. DreamWorks used Cerelink’s server capacity to do rendering work on two animated features, “How to Train Your Dragon” and “Shrek Forever After.”

Film rendering is used in post-production to apply visual effects and enhance images. In films that are completely animated, much more rendering is needed to add detail to each frame. Studios increasingly need more capacity to do this work, but DreamWorks is partnering with Cerelink to get that capacity as it needs it, rather than investing in permanent infrastructure at its California campus. And it can take advantage of the state’s production rebates and incentives, as well a the lower cost of power here, said DreamWorks officials.

Cerelink, which worked with the University of New Mexico and the New Mexico Computer Applications Center to refine the on-demand cloud computing model for rendering, will most likely grow its technical capacity 20 times by the end of 2011, said James Ellington, CEO of Cerelink. The company is also pursuing work with other film production firms.

SIC retains Dekom

The State Investment Council will renew its contract with Peter Dekom, but at a lower rate of pay. Dekom, an entertainment law attorney, has been earning $350,000 annually for vetting productions that apply for the state’s no-interest loan program. His salary will drop to $260,000, said Charles Wollman, spokesman for the SIC. There is also a minimum work requirement of 30 hours per week.

The SIC launched a search earlier this year to look for a less expensive alternative to Dekom. Three of the SIC members voted against the decision to give Dekom the contract, Wollman said: State Land Commissioner Patrick Lyons, Leonard Lee Rawson and Michael R. Martin.

The state makes zero interest loans to productions that have a distribution agreement in place and a third-party guarantor. It has lent a total of $243 million to 25 productions since the program launched. It has not lost any of its principal and all loans are currently on track to be repaid on time, Wollman said. At least $146.7 million has been repaid so far, according to SIC records. But the state has not recouped much in returns yet. It received $500,000 from “Employee of the Month” and $400,000 from two film production tax credit loans that it no longer does.

The state loaned “The Book of Eli” $15 million and it has so far grossed $150 million, Wollman said. One of Dekom’s new roles, if he agrees to the contract, is to identify an appropriate audit firm and work to identify profits that are potentially owed to the state from films that obtained loans and were financially successful.

Maltin launches new Reelz show

Film critic Leonard Maltin is launching a new show on ReelzChannel, which will be filmed at the company’s headquarters at Albuquerque Studios. Maltin has been commuting here to film his “Secret’s Out” show about hidden screen gems. It still will air on Reelz, but he will only shoot new episodes for “Maltin on Movies.”

The weekly show will feature Maltin’s recommendations, and reviews of movies in theaters and at home via on-demand, pay-per-view, premium channels and DVD.

The premier episode airs August 6 at 11 a.m. and 4 p.m. Mountain Time, and will feature reviews of “Step Up 3D,” Disney’s new musical, and the DVD releases of “Clash of the Titans” and “Kick-Ass.” He also will discuss the new British thriller “The Disappearance of Alice Creed” and the DVD releases of the French film “A Prophet” and the classic “Black Narcissus.”

ReelzChannel relocated its headquarters to Albuquerque last year from Minneapolis. It’s available locally on the Dish 299, DirecTV 238 and Comcast 161 channels.

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